Increasing Production From These Oil and Gas Producers Could Produce Returns for You
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The Energy Information Administration, in its most recent outlook, said that it expects global oil demand to grow by 0.9 million and 1.2 million barrels per day in 2013 and 2014 respectively. Considering the increase in demand for oil, the producers are constantly exploring new avenues to increase production. Moreover, due to uncertainty in the Middle-east, oil and gas production is shifting towards North America and several other countries. As such, here is the analysis of three North American companies that are consistently increasing their production.
A company for income investors
Currently, Marathon Oil (NYSE: MRO) has 230,000 net acres in the core of Eagle Ford Shale. In an earlier estimate, the company expected 1,200 wells could be drilled in the region, but it has been increased to 3,000 wells. Under this new estimate, it is planning to extend its infrastructural activities with its existing 16 rigs and also plans to deploy more rigs. The company will spend $2 billion in this region, out of its total target capital spending of $6 billion for the current year. Further, it expects the production from this region to increase to 85,000 barrels of oil equivalent per day, or boepd, in 2013 from 65,000 boepd in 2012. This increased production will be a major contributor to the overall expected revenue of $121 billion in 2013, which will register growth of approximately 35% from 2012.
Marathon has an on-going divestment plan of $1.5 billion- $3 billion. On June 25, it announced that its subsidiary, Marathon International Oil Angola Block 31 Ltd., has entered into an agreement to sell a 10 percent stake in Block 31 offshore Angola to SSI Thirty-One Ltd for $1.5 billion. The majority of the proceeds from this divestment is expected to be utilized for share buybacks and strengthening the balance sheet. As of now, Marathon is authorized to buy back 48.6 million shares. Therefore, analysts expect Marathon to buy back at least 5.39 million shares in 2013 and to continue the share repurchase program in 2014 and 2015. The fact that Marathon will continue to buy back its shares is evidenced in the generation of free cash flow of $774 million, $1.8 billion, and $2 billion in 2013, 2014, and 2015 respectively, up from -$1.2 billion in 2012.
A company to benefit from change in Israel’s government export policy
The political tensions in the Middle East led Noble Energy (NYSE: NBL), Delek Drilling, and Avner Oil to enter into an agreement to sell a combined 30% stake in Leviathan gas field to Woodstock last year. As per the agreement, Noble will remain the key operator of the gas field and will hold a 30% working interest. However, due to a possible occurrence of cartelisation by these companies in the Israeli market, the regulator did not grant its approval to the transaction at the time. Recently, the Israeli government relaxed the norms of its export policy on natural gas and approved the export of 40% of Israel’s offshore natural gas production. This relaxation will facilitate the completion of the transaction by the end of this year and will generate a net cash inflow of $802 million for Noble.
Noble has a 31% working interest in the Gunflint oil field in the Gulf of Mexico. Recently, it announced an appraisal of a second well in the region. The well has a gross resource of 65 million-90 million barrels of oil equivalent. The net cost of drilling this well is estimated to be $15 million. Drilling will also strengthen Noble's plan of subsea tieback development. These developments maximize the life of oil and gas producing infrastructure, thereby reducing the cost. The production from this well is expected to start in 2015 and will contribute $200 million-$300 million to Noble.
A legacy player in the midland basin
Pioneer Natural Resources (NYSE: PXD) and Sinochem International have been working on the development of Wolfcamp Shale for the past few years. As a part of the developmental work, both companies have entered into a transaction in which Pioneer agreed to sell 40% of its working interest in the Wolfcamp Shale to Sinochem. Prior to this transaction, Pioneer had 207,000 net acres in the region.
Both these companies have also agreed on a development plan of drilling 86 wells in 2013, 120 wells in 2014, and 165 wells in 2015 in the Wolfcamp Shale. These wells will be a major contributor to Pioneer’s revenue as it is expected to generate $3.6 billion, $4.6 billion, and $5.5 billion in 2013, 2014, and 2015 compared to $2.8 billion in 2012.
Additionally, Pioneer has approximately 900,000 net acres in the Permian Basin. As of now, the company has proved reserves of almost 640 million barrels of oil equivalent in this area. In order to fully utilize this huge resource potential, the company has laid out a drilling program in which it will add 3-5 rigs every year up to 2015. As such, Pioneer will spend $1.65 billion as capital expenditure in 2013. This will increase the company's overall oil production to 115 million and 140 million barrels per day in 2013 and 2014 respectively from 91 million barrels per day in 2012.
Marathon’s incremental production in the Eagleford Shale will improve its top-line. Additionally, its announcement of a buyback program makes it a buy for income investors.
The change in Israel’s government export policy will facilitate the completion of Noble’s transaction with Woodstock. Also, its constant drilling of wells in the Gunflint oil field will increase its production.
The huge resource potential of Pioneer in the Permian Basin and its joint venture with Sinochem sets a platform for it to increase its oil production in the future.
Therefore, both these stocks are a buy for long-term investors.
Madhukar Dubey has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!